CARO 2020 THE NEW ERA OF REPORTING BY CS YASH PAREEK (WWW.CSYASHPAREEK.IN)

 

||Om Shri Ganeshay Namah||

 

CARO 2020

THE NEW ERA OF REPORTING

TEAM YPA

Prepared by CS Yash Pareek

Valuable inputs by CS Neha Jain & CS Gajab Maheshwari

 

WWW.CSYASHPAREEK.IN 

 

YASH PAREEK & ASSOCIATES

Company Secretaries

BHOPAL | INDORE | NAGPUR | AHMEDABAD

 

Reach us at:

Address: T-3, 3^rd Floor, 207, M.P Nagar, Zone-II, Bhopal-462011, M.P

Mobile No: 9111575222

Email id: pcsyashpareek@gmail.com

 

Companies Auditors’ Report Order (CARO) 2020

 

1.     Relevance of CARO 2020 and Intent of MCA:

 

CARO 2020 prescribes the format of reporting by the company auditors after undergoing statutory audit under the Companies Act, 2013 with motive to enhance quality of report with disclosures on functioning and compliances done by the company to include a statement in their reports on specific matters as prescribed in the Companies (Auditors’ Report) Order (CARO) to help curb corporate scams and intends to introduce transparency and accountability in the audited financial numbers.

 

Main reason behind the replacement of CARO 2016 with CARO 2020 is enhanced accountability on the part of auditors to track the use of funds by the company in more detailed aspects and enable the stakeholders more specifically bankers, statutory bodies and shareholders to track the financial viability of the company and foresee the management of funds along with intention of promoters regarding the operations of the company.

 

 

2.     Applicability:

 

Statutory audits of all companies including foreign company commencing from 01.April.2021 i.e. from financial year 2021-22 as per MCA order dated 17 December 2020 except to the following companies:

 

A.     One person company

 

B.     Small companies

 

C.     Banking companies

 

D.     Companies registered under Section 8

 

E.      Insurance companies

 

F.      LLPs

 

G.     Private companies

 

·        Whose gross receipts or revenue (including revenue from discontinuing operations) is less than or equal to Rs 10 crore in the financial year.

 

·        Whose paid up share capital plus reserves is less than or equal to Rs 1 crore as on the balance sheet date (i.e. usually at the end of the FY).

 

·        Not a holding or subsidiary of a Public company.

 

·        Whose borrowings is less than or equal to Rs 1 crore at any time during the FY.

 

               Note:

·        CARO 2020 is not applicable to Consolidated Financial Statements (CFS).

 

·        CARO 2020 is applicable to Audit of branches of company and Project office/liaison office established outside India

 

 

 

3.     Reporting Particulars & Requirements Under CARO 2020:

The auditor’s report (CARO 2020) shall include a statement on the following matters, namely:

 

A.     Details of Tangible and Intangible Assets

 

The auditor’s report (CARO 2020) shall include following statements on the ‘Details of Tangible and Intangible Assets’ namely:

 

 

Sr. No	Reporting Particulars
1.	Whether the records maintained by the company display the complete particulars on the details, quantity and situation of tangible and intangible assets.
2.	Whether the management has carried out physical verification of the assets at different intervals reasonable with the size of the company
3.	Whether the material discrepancies, if any, noticed on physical verification have been accounted for in the books of accounts.
4.	Whether the title deeds pertaining to the immovable properties (except properties which are leased by the company with duly executed lease agreements in the company’s favour) disclosed in the financial statements are held in the name of the company
5.	If the title deeds are not held in the name of the company, the below details should be provided:   ·        Description  of a property ·        Gross carrying value ·        Held in the name of ·        Whether promoter, director or their relative or employee ·        Period held: indicate a range, where appropriate ·        Reason for not being held in the name of company* *also indicate if in dispute
6.	Whether a revaluation has been done by the company of its property, plant and equipment (including the right of use assets) or intangible assets or both during the year and, if so, whether the revaluation is based on the valuation by a Registered Valuer.
7.	In case of a change in values upon revaluation, specify the amount of change, if the change is 10% or more in the aggregate of the net carrying value of each class of property, plant and equipment or intangible assets
8.	Whether any proceedings have been initiated or are pending against the company for holding any benami property under the Benami Transactions (Prohibition) Act, 1988 (45 of 1988) and rules made thereunder. If yes, whether the company has appropriately disclosed the details in its financial statements

 

Notes relating to some important aspects:

 

§  Fixed assets has been replaced with Property, Plant and Equipment.

 

§  Companies would be required to maintain proper records of all items of PPE including those which have been fully depreciated, impaired or retired from active use and held for disposal, location of asset, original cost details, date on which asset become available for use.

 

§  For construction companies, record of movement/custody of equipment is to be maintained.

 

§  Management has to decide on periodicity of physical verification depending on number of assets, nature of assets, etc.

 

§  Intangible assets would include customer loyalty, patents, Internet domain names, Royalty agreements, Operating rights and website development.

 

§  Revaluation of PPE requires report of Registered Valuer of Plant & Machinery as per Section 247 of the Companies Act, 2013 and Rule 2 of the Companies (Registered Valuers and Valuation) Rules, 2017.

 

§  Schedule III to the Companies Act, 2013 required separate disclosure of reconciliation of the gross and net carrying amounts of each class of assets at the beginning and at the end of the reporting period, showing additions, disposals, acquisitions through business combinations, amount of change due to revaluation, related depreciation and impairment losses/reversals.

 

§  Few additional disclosures are specified under Schedule III to the Act as follows: Details of Benami Property, amount thereof, details of beneficiaries, if property is in the books, then reference to the item in the balance sheet, Facts and Reasons, if Property is not in the books, proceedings against the company, its nature, status and view of the company.

 

§  Specific disclosure would be required if immovable property is being held by promoter, Director or their relative.

 

§  Properly executed lease agreements would not be covered in Title deeds not held in the name of company.

 

 

 

 

 

 

B.     Details of Inventory and Working Capital

 

The auditor’s report (CARO 2020) shall include following statements on the ‘Details of Inventory and Working Capital’ namely:

 

 

Sr. No	Reporting Particulars
1.	Whether the management has carried out physical verification of inventory at reasonable intervals.
2.	If any discrepancies of 10% or more in the aggregate for each class of inventory were noticed and if so, whether they have been properly dealt with in the books of accounts.
3.	Has the company, during any point of time of the year, sanctioned working capital limits in excess of five crore rupees, in aggregate, from banks or financial institutions on the basis of security of current assets
4.	Are the quarterly returns or statements filed by the company with financial institutions or banks in agreement with the books of account of the Company. In case of non-agreement, to provide details of such non-agreement.

 

                          Notes relevant to some important aspects:

§  Reasonable interval would depend on circumstances of each case.

 

§  Periodicity of verification will depend on Nature of inventories, location and feasibility of conducting a physical verification.

 

§  Discrepancies of 10% or more in value, extent of discrepancies and its impact on financial statements needs to be reported.

 

§  Reporting of whether working capital limits in excess of Rs. 5 crores has been sanctioned from Banks/FIs on the basis of security of current assets. (Limit will include both fund based and non-fund based limits and would be determined on the basis of sanction letter) and will be seen throughout the year and not on last closing date.

§  Reporting on mismatch of returns filed by company with banks/FI such as stock statements, book debts statements, any financial information sent to lender and balances in Books of accounts

 

§  Reporting would not cover Unsecured working capital, Working capital sanctioned on assets other than current assets, Utilization of  working capital.

 

 

 

 

C.     Details of Investments, any Guarantee or Security or Advances or Loans given

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Details of Investments, any Guarantee or Security or Advances or Loans given’ namely:

 

 

Sr. No	Reporting Particulars
1.	If the company has during the year made any investments in, given any guarantee or security or granted any loans or advances which are characterized as loans, unsecured or secured, to LLPs, firms or companies or any other person
2.	If the company has provided advances or provided loans which are characterized as loans, or given guarantee, or given security to any other entity (other than a company carrying on a business of providing loans), the below information should be furnished:   ·        The total amount given during the year, and the balances due as at the balance sheet date with respect to such loans or advances and guarantees or security to subsidiaries, joint ventures and associates   ·        The total amount during the year, and the balance due on the balance sheet date of such loans or advances and guarantees or security to persons other than associates, subsidiaries and joint ventures
3.	In the case of investments made, guarantee or security provided, loans or advances granted (as mentioned above), the report should indicate:   ·        Whether the investments made, guarantees provided, security given and the terms and conditions of the grant of all loans and advances in the nature of loans and guarantees provided are not prejudicial to the company’s interest   ·        In respect of loans and advances in the nature of loans, whether the schedule of repayment of principal and payment of interest has been stipulated and whether the repayments or receipts are regular.   ·        If the amount is overdue, state the total amount overdue for more than ninety days, and whether reasonable steps have been taken by the company for recovery of the principal and interest
4.	In case any loan or advance in the nature of a loan is given which was due for repayment during the year and has been renewed or extended or fresh loans granted to settle the overdue of existing loans given to the same parties. If yes, specify the total amount of such dues renewed or extended or settled by fresh loans and the percentage (proportion) of the total to the total loans or advances granted during the year (other than companies whose principal business is to grant loans).   ·        In case the company has given any loans or advances in the nature of loans either repayable on demand or without specification of any terms or period of repayment. If so, to specify the total amount, percentage thereof to the total loans granted, the total amount of loans granted to promoters, related parties as defined section 2(76) of the Companies Act, 2013

 

 

Notes relevant to some important aspects:

 

1.Reporting on compliance with Section 185 of the Companies Act, 2013, Section 186 of the Companies Act, 2013, Section 179 of the Act, Section 180 of the Act and Section 187 of the Act.

 

2.Reporting on Default in repayment of loans and borrowings, whether company is declared as willful defaulter, purpose for which term loan is applied, use of short term funds for long term purposes, funds raised to meet obligations of subsidiaries, associates, joint ventures.

 

3.Reporting on Investment made, Guarantee or security provided or loans/advances in the nature of loans secured or unsecured to companies, firms, LLPs or any other parties.

 

4.All loans whether long term/short term, in cash or in kind, given by company to any party would be covered.

 

 

5.Reporting will not be required for companies whose principal business is to give loans such as NBFCs, FIs or NBFC registered as Core Investment Company.

 

6.Advance would be considered as loan if advance is in excess of the value of order or for period which is in excess of period for which such advances are given as per normal trade practice.

 

7.Reporting would cover only financial guarantee given by company to bank in respect of loan taken by third party.

 

8.Examination of loan agreements, letter of arrangement, schedule of repayment of principal and interest will be required to ascertain regularity of payment, non-execution of agreement, steps taken by company to recover principal and interest.

 

9.With respects to loans and investment, reporting involves assessment of rate of interest which should not be lower than prevailing yield of government security, special resolution duly passed in case of loans exceed specified limits and prior of PFI is obtained where any term loan is subsisting.

 

10.   Borrowing will not include Public deposits and preference share capital

 

11.   Additional disclosure under Schedule III to the Act also covers date of declaration of willful defaulter, amount and nature of defaults.

 

 

D.    Compliance in respect of a Loan to Directors

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Compliance in respect of a Loan to Directors’ namely:

 

 

Sr. No	Reporting Particulars
1.	If the company has given any loans to directors or any other person in whom the director is interested, or made any investments, whether the company has made compliance with the provisions governing such loans, investments and guarantees.

 

 

 

 

E.     Compliance in respect of Deposits Accepted

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Compliance in respect of Deposits Accepted’ namely:

 

 

Sr. No

Reporting Particulars

1.

In case the company has accepted deposits or deemed deposits, whether the company has followed the directives of the RBI as under: –   ·        Compliance with the provisions prescribed for accepting deposits under section 73 to 76 of the Companies Act, 2013.   ·        The nature of contraventions, if the above provisions are not followed.   ·        Compliance with any order passed by any court or tribunal.   ·        Reporting of any non-compliance with the provisions of Companies Act, 2013.

 

Notes relevant to some important aspects:

 

1.Auditor is required to report whether Directives issued by RBI and the provisions of Section 73 to 76 have been complied with.

 

2.Order passed by NCLT, CLB, court, RBI or any other tribunal has been complied with.

 

3.Auditor is required to check deemed deposits.

 

4.Filing of form DPT-3 with ROC.

 

5.Disclosure of amount received from Directors/relative of directors in financial statements.

 

 

 

 

 

F.      Maintenance of Costing Records

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Maintenance of Costing Records’ namely:

 

 

Sr. No	Reporting Particulars
1.	In case the company is required to maintain cost records, whether the records have been maintained during the year and non-compliance if any.

 

Notes relevant to some important aspects:

 

1.      Reporting on whether cost accounts and records have been made and maintained.

 

2.      Reporting on whether cost records has been ordered by CG. If yes, whether maintained in Form CRA-1 pursuant to Section 148 of the Act.

 

3.      Specified class of companies engaged in production of goods or providing services with overall turnover from all its products and services of INR 35 crore or more during the immediately preceding financial year are required to maintain cost records.

 

4.      Every company specified under Rule 3A shall get its cost records audited if the overall turnover of the company from all its products and services during the immediately preceding financial year is INR 50 crore or more and the aggregate turnover of the individual product or products or service or services for which records are required to be maintained under Rule 3 is INR 35 crore or more.

 

 

 

 

 

G.    Deposit of Statutory Liabilities

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Deposit of Statutory Liabilities’ namely:

 

 

Sr. No	Reporting Particulars
1.	Whether the company has:   ·        Regularly deposited statutory dues.   ·        Are any statutory dues pending for a period more than 6 months as on the balance sheet Date.   ·        In case of any disputed statutory dues, the amount of such dues, the forum before which the dues are litigated.

 

    Notes relevant to some important aspects:

 

·        Reporting on regularity of payment of the company in depositing undisputed statutory dues including Goods and Services (GST), PF, Employee state Insurance, Income Tax, Sales Tax, Service Tax, Custom duty, Excise duty, TDS or any other statutory dues applicable on company having regard to its nature of business

 

·        Reporting would not cover dues levied by statutory authority upon occurrence or non occurrence of any events and are not levied regularly such as dividend, Bonus, etc.

 

·        Reporting on Extent of arrears for a period of more than 6 months from the date they become payable and forum where dispute is pending in respect of such arrears, if any.

 

·        Statutory dues in dispute means where company has not accepted the demand for duty or tax and appropriate action has been taken on part of the company i.e. appeal before appropriate forum within limitation of time.

 

 

 

H.    Unrecorded Income

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Unrecorded Income’ namely:

 

Sr. No	Reporting Particulars
1.	Whether any transactions which are not recorded in the accounts have been disclosed or surrendered before the tax authorities as income during the year.  The details of such income tax assessments should be disclosed.   Whether such undisclosed income has been recorded in the accounts during the year.

 

 

 

I.       Default in Repayment of Borrowings

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Default in Repayment of Borrowings’ namely:

 

 

Sr. No	Reporting Particulars
1.	In case the company has made any default in the repayment of loans to banks, government, debenture-holders, etc. then the amount and period of default.   ·        Description of borrowing includes debt securities ·        Name of lender ·        Amount unpaid on the due date ·        Whether interest or principal ·        Number of days of delay or unpaid ·        Auditor’s remarks
2.	Has the company been declared a willful defaulter by any bank or financial institution or any other Lender.
3.	Have term loans been used for the object for which they were obtained; in case they have not been, the loan funds diverted and disclosure of the end use of such loans.
4.	Has the company used funds raised on a short term basis for long term purposes. The nature and the amount of such funds.
5.	Has the company raised any money from any person or entity for the account of or to pay the obligations of its associates, subsidiaries or joint ventures. The details of the money raised with the description of the transactions and the amounts in each case.
6.	Has the company raised any loans during the year by pledging securities held in their subsidiaries, joint ventures or associate companies. The details of such loans and also the default in the repayment of the loans.

 

 

J.      Funds Raised and Utilization

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Funds Raised and Utilization’ namely:

 

 

Sr. No

Reporting Particulars

1.

If the company has raised any funds from a public offer (equity or debt capital), details of the funds applied for the purposes.   Also, the details of default or delays and rectification measures taken.   Has the company made any private placement or preferential allotment of shares or convertible debentures (fully, partially or optionally convertible) during the year:   ·        Whether the same is in accordance with section 42 and section 62 of the Companies Act, 2013. ·        Whether the funds raised, have been used for the purposes they were raised and the non-compliance, if any.

 

 

    Notes relevant to some important aspects:

 

·        As per schedule III, unutilized amount of IPO or FPO should be disclosed in financial statements.

 

·        Compliances with Section 42 and/or Section 62 of the Act needs to be checked.

 

·        Funds have been used for the purpose for which it has been raised. If not details of amount involved and nature of non-compliance to be reported.

 

·        PAS-3 is to be filed within 15 days from the date of allotment and amount should not be utilized before the filing of PAS-3.

 

·        Securities should get allotted within 60 days of the receipt of application money for such securities by the company or else refund money to the subscribers within 15 days from the expiry of 60 days.

 

·        Valuation report of registered valuer is required.

 

·        Auditor needs to verify PAS-4 and Explanatory statement to check whether funds were applied for purpose for which it has been raised.

 

·        Amount not utilized, delay in utilization, nature of default are required to be reported by auditor, if company doesn’t utilize funds for the purpose for which they were borrowed.

 

 

 

K.     Fraud and Whistle-Blower Complaints

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Fraud and Whistle-Blower Complaints’ namely:

 

 

Sr. No

Reporting Particulars

1.

Has there been any fraud by the company or any fraud done on the company. If any such fraud has been noticed or reported any time of the year. If yes, reporting on   ·        Nature and amount involved.   ·        Whether the auditors of the company have filed a report in Form ADT-4 with the Central Government as prescribed under the Companies (Audit and Auditors) Rules, 2014.   ·        In case of receipt of whistle-blower complaints, whether the complaints have been considered by the auditor.

 

 

Notes relevant to some important aspects:

 

1.      The term fraud has been defined under Section 447 of the Act.

 

2.      Reporting on whether form ADT-4 has been filed with the Central government as per Section 143 (12) depicting fraud committed in the company by its officers involving amount of Rs. 1 crore or above to the Central government or to board/committee if amount involved is less than Rs. 1 crore.

 

 

 

 

 

L.      Compliance by a Nidhi

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Compliance by a Nidhi’ namely:

 

 

Sr. No	Reporting Particulars
1.	Compliance with provisions applicable to a Nidhi company:   ·        Maintaining of net owned funds to deposit ratio of 1:20 for meeting liabilities.   ·        Maintaining 10% term deposits (which are unencumbered) for meeting liabilities.   ·        Details of any default in payment of interest on deposits or repayment of for any period

 

Notes relevant to some important aspects:

 

1.      Nidhi company cannot accept deposits exceeding 20 times of its net owned funds as per its latest audited financial statements. Shortfall and actual ratio of net owned funds to deposits are required to be reported.

 

2.      Every Nidhi company is required to invest and continue to keep invested in unencumbered term deposits an amount which shall not be less than 10% of the deposits outstanding at the close of business on the last working day of the second preceding month with scheduled commercial bank or post office deposits in its own name. Shortfall with regard to minimum amount of 10% as unencumbered term deposits are required to be reported.

 

3.      Default in repayment of deposits or interest thereon is to be reported with following disclosures:

 

·        Nature of default

·        Amount of default

·        Period of default

·        Number of persons to whom there was default in payments

·        Nature of dispute between company and depositor

·        Any other detail

 

 

4.      NDH-3, repayment schedule of principal and interest are to be checked.

 

5.      Every Nidhi company should ensure that Minimum net owned fund of INR 10 Lacs is maintained within a period of one year from the date of its incorporation.

 

6.      Filing of half yearly return in form NDH-3 with ROC within 30 days from the conclusion of each half year should also be checked.

 

 

 

M.   Compliance on Transactions with Related Parties

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Compliance on Transactions with Related Parties’ namely:

 

 

Sr. No	Reporting Particulars
1.	Whether the company has complied with the provisions of section 188 of the Companies Act, 2013 in respect of transactions with related parties.   Also, whether appropriate disclosures are made in the financial statements.

 

 

Notes relevant to some important aspects:

 

1.      Reporting on all transactions with related parties are in compliance with Section 177 and Section 188 of the Act and disclosed in financial statements as per AS-18 containing names of related parties, relation between parent and subsidiaries, compensation to KMP, information relating to transactions and outstanding balances.

 

2.      Reporting on whether approval of Board Is obtained for transactions that are not in ordinary course of business and which are not on arms length basis.

 

 

3.      Reporting on whether shareholders approval by an ordinary resolution is obtained for:

 

·        Sale, purchase or supply of goods amounting to 10% or more of the turnover of the company

 

·        Selling, disposing or buying property of any kind amounting to 10% or more of the net worth of the company

 

·        Leasing of property of any kind amounting to 10% or more of the turnover of the company

 

·        Availing or rendering of any services amounting to 10% or more of the turnover of the company

 

·        Appointment to any office or place of profit in the company, subsidiary company or associate company on remuneration exceeding Rs. 2.5 Lakh

 

·        Underwriting the subscriptions of any securities or derivates of the company on remuneration exceeding one percent of the net worth

 

4.      Reporting of whether approvals of audit committee under Section 177 of the Act has been obtained for all RPTs or omnibus approval has been taken under Section 188 of the Act subject to conditions.

 

 

 

N.    Internal Audit System

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Internal Audit System’ namely:

 

Sr. No	Reporting Particulars
1.	Does the company have an internal audit system in accordance with its size and business activities.   Have the reports of the internal auditors been considered by the statutory auditor.

 

 

Notes relevant to some important aspects:

 

1.      Pursuant to Section 138 of the Act, following companies are required to mandatorily appoint internal auditor:

 

a.      Listed company

 

b.      Unlisted public company meeting either of following criteria during the preceding the FY:

 

·        Paid up share capital of Rs. 50 crore or more

 

·        Turnover of Rs. 200 crore or more

 

·        Outstanding loan or borrowings from banks or PFI exceeding Rs. 100 crore

 

·        Outstanding deposits of Rs. 25 crore or more at any point of time

 

c.      Private company with turnover of INR 200 crore or more OR Outstanding loan or borrowings from banks or PFI exceeding Rs. 100 crore during the preceding FY

 

 

 

O.    Non-Cash Dealings with Directors

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Non-Cash Dealings with Directors’ namely:

 

 

Sr. No	Reporting Particulars
1.	In case the company has undertaken non-cash transactions with their directors or other persons connected to the directors and whether the restrictions imposed are complied with.

 

 

Notes relevant to some important aspects:

1.      Company is prohibited from entering following arrangements under Section 192 of the Companies Act, 2013 unless prior approval of shareholders through ordinary resolution has been obtained and similar resolution passed in holding company, if involved in transaction:

 

·        Acquisitions of assets for consideration other than cash by director of company or its holding, subsidiary or associate company

·        Acquisitions of assets for consideration other than cash by company from director of company or person connected with director

 

2.      Auditor should seek Form No. MBP-1, MBP-2, MBP-4, Minutes of board and committees to ascertain the details of transaction.

 

 

 

P.     REGISTRATION UNDER SECTION 45-IA OF RBI ACT, 1934

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Registration under Section 45-IA of RBI Act, 1934’ namely:

 

 

Sr. No	Reporting Particulars
1.	Is the company required to be registered under the RBI Act and whether the company has obtained Registration.
2.	Whether the company has carried on any Non-Banking Financial or Housing Finance activities (NBFC or HFC) without having a valid registration certificate from RBI.
3.	Is the company a Core Investment Company (CIC) under the RBI regulations and does it continue to fulfill the criteria of a CIC. In case the company is an exempted or unregistered CIC, does the company continue to fulfill the criteria for exemption.
4.	Does the group to which the company belongs have more than one CIC as part of it, then indicate the number of CICs which are in the group.

 

 

 

 

Q.    Cash losses

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Cash losses’ namely:

 

 

Sr. No	Reporting Particulars
1.	Has the company incurred any cash losses in the financial year and the immediately preceding financial year, the amount of cash losses incurred.

 

 

R.     Resignation of statutory Auditors

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Resignation of statutory Auditors’ namely:

 

 

Sr. No	Reporting Particulars
1.	Whether during the year, has there been any resignation of statutory auditors, if yes, has the auditor considered the objections, issues or concerns raised by the outgoing auditors.

 

 

Notes relevant to some important aspects:

 

1.Whether ADT-3 was filed by auditor who has resigned within 30 days giving intimation of resignation with the ROC.

 

2.In case of listed company, companies are required to obtain information regarding reasons for resignation, management imposed limitation to obtain information required for audit within 24 hours of receipt of information from auditor.

 

3.Casual vacancy has been filed by appointment of new auditor in place of existing auditor.

 

4.As per Guidance issued by ICAI, ambiguous reasons should be avoided such as personal reasons or due to pre-occupation.

 

 

S.      Material Uncertainty on meeting Liabilities

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Material Uncertainty on meeting Liabilities’ namely:

 

 

Sr. No

Reporting Particulars

1.

Existence of any material uncertainty on the date of the audit report on an evaluation of:   ·        The ageing report, financial ratios and expected dates of realisation of financial assets and payment of financial liabilities, any other information accompanying the financial statements.   ·        The auditor’s knowledge of the Board of Directors and management plans.     ·        Opinion whether the company can meet its the liabilities which exist as at the balance sheet date when such liabilities are due in the future.

 

Notes relevant to some important aspects:

 

1.      Amendment requires companies to make following disclosures in schedule III of the Act:

 

·        Current ratio

·        Debt Equity Ratio

·        Debt service coverage ratio

·        Return on equity ratio

·        Inventory turnover ratio

·        Trade receivables turnover ratio

·        Trade payables turnover ratio

·        Net capital turnover ratio

·        Net profit ratio

·        Return on capital employed

·        Return on Investment

 

Explanation shall be provided for any change in ratio by more than 25 percent as compared to the preceding financial year.

 

 

 

T.     Transfer to fund specified under Schedule VII of Companies Act, 2013

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Transfer to fund specified under Schedule VII of Companies Act, 2013’ namely:

 

 

Sr. No

Reporting Particulars

1.

With respect to obligations under Corporate Social Responsibility,   ·        Whether the company has transferred the unspent amount to a Fund specified in Schedule VII to the Companies Act within a period of 6 months from the expiry of the financial year.   ·        Whether any amount which remains unspent has been transferred to a special account in accordance with provisions of section 135 of the Companies Act, 2013.

 

Notes relevant to some important aspects:

 

1.      MCA on January 22, 2021, made utilization of unspent amount earmarked for CSR activities mandatory for companies failing which it would be transferred to funds specified in the Schedule VII to the 2013 pursuant to Section 135 of the 2013 Act and the Companies (CSR Policy), Rules 2014

 

2.      Auditor is required to comment on following:

 

·        In case of ongoing projects:

Whether the company has transferred the unspent CSR amount to a special account in compliance with the provisions of Section 135(6) of the 2013 Act.

 

·        In case of projects other than ongoing:

Whether the company has transferred the unspent CSR amount to a fund specified in Schedule VII to the 2013 Act within a period of 6 months of the expiry of the FY in compliance with the provisions of Section 135 (5) of the Act.

 

3.      Where the company is covered under Section 135 of the 2013 Act, the following shall be disclosed with regard to CSR activities:

 

·        Amount required to be spent by the company during the year

·        Amount of expenditure incurred

·        Shortfall at the end of the year

·        Total of previous year shortfall

·        Reason for shortfall

·        Nature of CSR activities

·        Details of RPTs

 

U.    Qualifications or adverse auditor remarks in other group companies

 

The Auditor’s Report (CARO 2020) shall include following statements on the ‘Qualifications or adverse auditor remarks in other group companies’ namely:

 

 

Sr. No

Reporting Particulars

1.

In case there have been any qualifications or adverse remarks in the audit reports issued by the respective auditors in case of companies included in the consolidated financial statements, to indicate the details of the companies and the paragraph numbers of the respective CARO reports containing the qualifications or adverse remarks.   All the above-stated clauses are mandatory to be reported on. Also, the disclosures are to be given appropriately.

 

CONCLUSIVE REMARKS:

 

CARO 2020 has put additional responsibility on the shoulders of both Management and Statutory auditor to prepare a robust compliance reporting systems with checks and measures to ensure compliances with the applicable provision of the Companies Act, 2013 and other applicable statutory Acts.   CARO 2020 will also ensure that Auditors report will become more relevant in ascertaining the financial health of company and intention of company to use its funds along with reporting of material transactions having impact on financial numbers of the company.

 

CARO 2020 also ensures that stakeholders should check the report issued by statutory auditors before entering into any transaction with the company being Proposed creditors, Bankers, Shareholders, professionals undertaking various audits and other stakeholders.

 

Happy reading.

CS YASH PAREEK

 Regards,

CS Yash Pareek   [ICSI Silver Medalist]

Company Secretary  I     Yash Pareek & Associates {www.csyashpareek.in/Professional}

Entrepreneur             I     Manomay Innovations Private Limited {www.manomay.co.in}

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Disclaimer: The entire contents of this document have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I, CS Yash Pareek assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information.